US Fed chairman sees still high unemployment, risks from Europe

07 June 2012 17:52[Source: ICIS news]

WASHINGTON (ICIS)--The ?xml:namespace>US is poised for moderate growth this year, Federal Reserve Board chairman Ben Bernanke said on Thursday, but unemployment will remain high and the European crisis poses a significant risk to the US financial system and economy.

Speaking before the Joint Economic Committee of Congress, Bernanke cautioned that any major improvement in the US employment picture is only likely if there are rapid gains in economic activity – which he does not expect.

Noting that the US unemployment rate rose slightly to 8.2% in May, he suggested that employers had rehired enough workers in the immediate aftermath of the 2008-2009 recession, and that further hiring hinges on needed gains in overall economic activity.

But that sort of more rapid improvement in US economic growth, he said, is restrained by uncertainty.

While US households have increased spending somewhat and consumer confidence is up from last year’s levels, “households and businesses still appear quite cautious about the economy”, he said.

“For example, according to surveys, households continue to rate their income prospects as relatively poor and do not expect economic conditions to improve significantly,” Bernanke said in his testimony.

“Similarly, concerns about developments in Europe, US fiscal policy and the strength and sustainability of the recovery have left some firms hesitant to expand capacity” or hire more workers, he added.

“Concerns about sovereign debt and the health of banks in a number of euro-area countries continue to create strains in global financial markets,” Bernanke told the panel.

“The crisis in Europe has affected the US economy by acting as adrag on our exports, weighing on business and consumer confidence and pressuring US financial markets and institutions,” he said.

Bernanke said that while European policymakers have taken steps to contain the crisis, he indicated that government and financial leaders in Europe have not done enough.

More action by those leaders, he said, “will likely be needed to stabilise euro-area banks, calm market fears about sovereign finances, achieve a workable fiscal framework for the euro area and lay the foundations for long-term growth”.

In the meantime, Bernanke added, “the situation in Europe poses significant risks to the US financial system and economy”.

Against those risks, he said, “the Federal Reserve remains prepared to take action as needed to protect the US financial system and economy in the event that financial stresses escalate”.